WEBVTT - Jack McIntyre on the Markets (Radio)

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<v Speaker 1>Let's get to our guess. Jack McIntyre's portfolio manager at

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<v Speaker 1>Brandywine Global joining us from Philadelphia. Great to have you

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<v Speaker 1>with us, Jack. So we have these global tightening expectations

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<v Speaker 1>on the rise. We were just talking about the A, B,

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<v Speaker 1>and Z overwhelmingly expected to hike for a fourth month

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<v Speaker 1>today and that would take their total cash rate hikes

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<v Speaker 1>to three basis points over the past twelve months. Is

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<v Speaker 1>there a risk here though, what we're seeing with global

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<v Speaker 1>central banks of overtightening and does that mean that a

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<v Speaker 1>recession is really the only cure to kind of reign

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<v Speaker 1>in inflation here? Yeah, it's really that's the sixty four

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<v Speaker 1>million dollar question because we have to find out. Yeah,

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<v Speaker 1>you know, inflation has come down. It's great to see

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<v Speaker 1>commodity prices of oil, but to get us down meaningfully, uh,

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<v Speaker 1>you know, you're gonna have to see weakness in the

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<v Speaker 1>labor market the stick your inflation, and that the question is, right,

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<v Speaker 1>do we need to see a shift towards recession to

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<v Speaker 1>get that type of inflation lower? And the urban Z

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<v Speaker 1>is in the same spot as a lot of central banks.

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<v Speaker 1>You're you're tightening into slowing economies right now. So certainly

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<v Speaker 1>you increase the risk of recession. But it's you know,

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<v Speaker 1>it's fascinating because when you look at the way risk

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<v Speaker 1>ascids equities are trading, uh, they're not trading as though

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<v Speaker 1>there have recession concerns. No, absolutely not. So does that

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<v Speaker 1>kind of mean that we're sort of at perhaps a

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<v Speaker 1>bear market pause rather than a sustained rally. We're continuing

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<v Speaker 1>to see, uh, some upside momentum. I guests in in

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<v Speaker 1>these markets and we're asking as well, do you see

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<v Speaker 1>temper cent higher next for the SNP five D or

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<v Speaker 1>do you go down again? In terms of a bit

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<v Speaker 1>of a pause. Yeah, I'm still a little bit more

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<v Speaker 1>cautious right now. I get it. I understand you know, uh,

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<v Speaker 1>you know, oil, as I mentioned, oil prices are down,

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<v Speaker 1>consumer confidence things have improved, so equity prices have obviously

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<v Speaker 1>rally pretty significantly. But I don't think we're out of

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<v Speaker 1>the woods yet, because I do still think that the

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<v Speaker 1>again I'm taking central banks at face value, that breaking

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<v Speaker 1>the back of inflation is job one, no matter what takes,

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<v Speaker 1>whether it takes uh you know, pain in the labor market,

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<v Speaker 1>in the actual economy. So obviously I could be wrong,

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<v Speaker 1>but I would not be a buyer of equities right

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<v Speaker 1>at these levels. All right, so you're being a little

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<v Speaker 1>bit more cautious. We did see that Bank of America

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<v Speaker 1>Investors survey uh suggests perhaps that investors are stepping back

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<v Speaker 1>from their recent record pessimism. But what kind of moves

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<v Speaker 1>it down next? I mean, we've got the f O

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<v Speaker 1>m C coming up in September. We've also got checks

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<v Speaker 1>and hold too later this month. Yeah, and that's uh,

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<v Speaker 1>certainly critical. And you obviously have the Minutes tomorrow, although

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<v Speaker 1>I don't think we're gonna learn a lot because right now,

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<v Speaker 1>I mean, the Fed is is giving us their roadmap,

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<v Speaker 1>and that's you know, hit it hard, tighten policy aggressively.

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<v Speaker 1>And then we also next month you have the maximum

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<v Speaker 1>sort of pain coming from quantitative tightening as well. So

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<v Speaker 1>it's really you know, raise rates significantly now. And then

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<v Speaker 1>the question is not just you know, are they gonna

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<v Speaker 1>be cutting next year, but how long are they gonna pause? Uh?

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<v Speaker 1>And I think the message that we're gonna hear from

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<v Speaker 1>the Fed is that, hey, that pause might be longer

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<v Speaker 1>than what the market expects. I wanted to pick up

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<v Speaker 1>on why you are nervous but underweight the dola here. Yeah, truly,

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<v Speaker 1>this is and I am nervous because the dollar obviously

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<v Speaker 1>has been very strong. Um, you know, it's the risk

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<v Speaker 1>off currency. Obviously we're in a risk on environment, so

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<v Speaker 1>the dollars we can But when you take a step

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<v Speaker 1>back up, you know, there's two reasons why I want

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<v Speaker 1>to underweight the dollars. First is, you know, the if

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<v Speaker 1>oil prices continue to lower, commanding prices inflation is peaked

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<v Speaker 1>to FED might not ultimately have to tighten as much

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<v Speaker 1>as what's getting discounted in the market. Uh. However, the

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<v Speaker 1>flip side, though, if we're wrong and the FED titans

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<v Speaker 1>and has to tighten more aggressively, the odds of recession

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<v Speaker 1>increase in the US. So you know, and again I

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<v Speaker 1>understand it could be a period where you do get

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<v Speaker 1>some dollar strength, but if you look out, relative growth

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<v Speaker 1>differentials are gonna be big. And if the US is

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<v Speaker 1>heading towards the recession, I gotta think the US dollar

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<v Speaker 1>is gonna weekend. And and lastly, you've been hearing a

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<v Speaker 1>lot of pressure from corporate sector about the strength of

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<v Speaker 1>the dollar, and that typically is associated with the turning

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<v Speaker 1>point in the dollar. What about the consumer though, and

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<v Speaker 1>what that's telling us about the real economy. I mean,

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<v Speaker 1>we're talking about last month Walmart cutting its profit forecast.

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<v Speaker 1>Now it's got a bit more of an upbeat tone. Yeah,

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<v Speaker 1>but I'm still in this camp. We're gonna go through

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<v Speaker 1>some goods deflation. I don't think there's a lot of

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<v Speaker 1>pent up demand from the consumer to buy goods. They've

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<v Speaker 1>been buying goods for the last two years and here

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<v Speaker 1>and you know the Walmart news. I mean, remember you

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<v Speaker 1>had upper income earners shifting and increasing their purchases at Walmart.

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<v Speaker 1>We saw that post GFC, So you know, I'm not

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<v Speaker 1>sture on the surface that is a net postive for

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<v Speaker 1>the consumer. Alright, We've been watching a big move in

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<v Speaker 1>the bond market globally this week, and none so more

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<v Speaker 1>than what we've seen in China. And this is very much,

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<v Speaker 1>I guess, reinforced by that divergence with what you're seeing

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<v Speaker 1>with basuries as well. China is still very much in

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<v Speaker 1>a slowdown mode and more stimulus has perhaps needed. But

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<v Speaker 1>what does that big spike lower in China Tania yields

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<v Speaker 1>tell you? Yeah, it tells me. Uh, it confirms what

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<v Speaker 1>the data has been telling me, is that China is struggling.

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<v Speaker 1>They're they're they're they're slowing down, uh, seeming precipitously, the

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<v Speaker 1>credit impulse is going to probably roll over in here.

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<v Speaker 1>So bigger picture, I view China sort of being a

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<v Speaker 1>disinflationary impulse for the broader global economy. I wish I

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<v Speaker 1>owned Chinese bonds. I didn't and don't, but I think

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<v Speaker 1>as China bonds rally, that's probably gonna be a good

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<v Speaker 1>environment for some of those higher yielding e M bonds

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<v Speaker 1>because as China slows down, could be disinflationary. And you know,

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<v Speaker 1>if we see lower commanded prices, that's gonna put downward

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<v Speaker 1>pressure on e M inflation because food and energy is

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<v Speaker 1>a bigger part of their CPI basket, and that actually

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<v Speaker 1>could be a net positive form bonds. Yeah, and you say,

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<v Speaker 1>as well, em equities finally attracting influence. But to quote

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<v Speaker 1>you as well, not all e M created equally, Which

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<v Speaker 1>are you sort of favoring amongst emerging markets. Yeah, So

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<v Speaker 1>where the biggest dislocation is from an inflation standpoint, and

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<v Speaker 1>that's more in Latin America. I mean, one of the

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<v Speaker 1>things that I've been impressed with with the central banks

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<v Speaker 1>in Latin America's that they've taken their real so inflation

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<v Speaker 1>adjusted policy rates positive right now, so they've had a

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<v Speaker 1>big commitment to breaking the back of inflation. Uh. And

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<v Speaker 1>I think again, I expect to see continuing weakness and

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<v Speaker 1>commodity prices because of China slow down. So that could

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<v Speaker 1>be kind of a situation where those central banks either

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<v Speaker 1>go on pause before we see in the developer world

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<v Speaker 1>or start cunning rates. Jack, just finally, let's send it

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<v Speaker 1>in on a positive note. I mean, what, what is

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<v Speaker 1>something that you are seeing that is you know, potential

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<v Speaker 1>upside here because there are a lot of concerns as

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<v Speaker 1>we've discussed about inflation, about recession, but anything kind of

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<v Speaker 1>taking your fancy. Uh, it is just the e M assets.

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<v Speaker 1>I would tell you that Dave lagged for a long

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<v Speaker 1>time now. I think the surprise would be that they

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<v Speaker 1>continue to track capital. They've been under invested, both from

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<v Speaker 1>a retail and institutional investors standpoint, So I expect them

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<v Speaker 1>to do well, all right, and lets him as you

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<v Speaker 1>mentioned in particular, Thank you so much. Jack. Jack McEntire,

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<v Speaker 1>portfolio manager at brandy one Global, on the line from

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<v Speaker 1>Philadelphia for US here on Bloomberg Daybreak Asia,